Question 1

The CPI differs from the GDP deflator in that the CPI includes

Accepted Answer

A)   Raw material prices whereas the GDP deflator does not.
B)   Only goods whereas the GDP deflator includes both goods and services.
C)   Only services whereas the GDP deflator includes both goods and services.
D)   Only items the typical household buys, whereas the GDP deflator includes all goods and services produced in the economy.E) All of the above
F) B) and C)

Question 2

The first step in computing the CPI is to determine which prices are most important to the _____________.

Accepted Answer

A)   personal buyer.
B)   professional shopper.
C)   purchasing agent.
D)   typical consumer.E) B) and C)
F) A) and D)

Question 3

Improvements in the quality of consumer goods and services over time

Accepted Answer

A)   Cause the CPI to overstate actual inflation.
B)   Cause the CPI to understate actual inflation.
C)   Are accounted for in the CPI.
D)   Are insignificant and thus would not affect the CPI even if accounted for.E) B) and D)
F) B) and C)

Question 4

The second step in computing the CPI is to find the prices of each of the goods and services in the ________ for each point in time?

Accepted Answer

A)   household.
B)   basket.
C)   kitchen pantry.
D)   super market.E) A) and B)
F) A) and C)

Question 5

Suppose you spend 30 per cent of your budget on food, 20 per cent on transport, 40 per cent on rent, 5 per cent on entertainment, and 5 per cent on miscellaneous items. If the price of all parts of your budget rises equally in percentage terms, which would have the most weight on your cost of living increase? (Assume you calculate your index the same way the CPI is calculated.)

Accepted Answer

A)   Food
B)   Transport
C)   Rent
D)   EntertainmentE) A) and C)
F) C) and D)

Question 6

How does the GDP deflator differ from the CPI?

Accepted Answer

The GDP deflator differs from the CPI in...

Question 7

Under which of the following conditions would you prefer to be the borrower?

Accepted Answer

A)   The nominal rate of interest is 12 per cent and the inflation rate is 9 per cent.
B)   The nominal rate of interest is 20 per cent and the inflation rate is 25 per cent.
C)   The nominal rate of interest is 5 per cent and the inflation rate is 1 per cent.
D)   The nominal rate of interest is 15 per cent and the inflation rate is 14 per cent.E) None of the above
F) A) and D)

Question 8

Since the global financial crisis in 2007-09, real interest rates have been negative. This means that inflation is eroding people's savings more quickly than ________ are increasing their savings.

Accepted Answer

A)   retail payments
B)   consumer interest payments
C)   nominal interest payments
D)   nominal interest ratesE) A) and B)
F) None of the above

Question 9

What does the CPI measure?

Accepted Answer

The CPI measures changes in prices of a ...

Question 10

A worker received €50 for a daily wage in 2000. What is the value of that wage today if the CPI was 20 in 200 and is 80 today?

Accepted Answer

A)   €50
B)   €200
C)   €300
D)   €400E) None of the above
F) B) and D)

Question 11

Compute how much each of the following items is worth in terms of today's euros using 177 as the price index for today.
a. In 1926, the CPI was 17.7 and the price of a cinema ticket was €0.25.
b. In 1932, the CPI was 13.1 and a cook earned €15.00 a week.
c. In 1943, the CPI was 17.4 and a litre of petrol cost €0.19.

Accepted Answer

a. The cinema ticket is worth €.25 × 177...

Question 12

An increase in the price of diamonds will have a greater impact on the Consumer Prices Index (CPI) than an equal percentage increase in the price of food because diamonds are so much more expensive.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements is correct?

Accepted Answer

A)   The real interest rate is the sum of the nominal interest rate and the inflation rate.
B)   The nominal interest rate is the inflation rate minus the real interest rate.
C)   The nominal interest rate is the real interest rate minus the inflation rate.
D)   The real interest rate is the nominal interest rate minus the inflation rate.E) A) and B)
F) None of the above

Question 14

Which of the following is a reason why the CPI is not calculated as a simple average of all prices?

Accepted Answer

A)   Some goods experience large price changes and the CPI would be too variable if computed by a simple average.
B)   Goods differ in their importance in the average consumer's budget.
C)   Some goods never experience price changes and the CPI would not be variable enough if computed as a simple average.
D)   It would be difficult to compute a price index using a simple average of all prices.E) A) and B)
F) A) and D)

Question 15

If a lender wants a real return of 6 per cent and she expects inflation to be 4 per cent, which of the following is the nominal interest rate to charge?

Accepted Answer

A)   4 per cent
B)   6 per cent
C)   2 per cent
D)   10 per centE) B) and C)
F) A) and D)

Question 16

The good that receives the most weight in the CPI is the good that

Accepted Answer

A)   Consumers buy most frequently.
B)   Has experienced the greatest price increase.
C)   Has the highest price.
D)   Consumers spend the largest fraction of their income on.E) C) and D)
F) All of the above

Question 17

An increase in the price of helicopters purchased by the UK armed forces is captured by the Consumer Prices Index (CPI).

Accepted Answer

A) True 
 B)False

Question 18

Which of the following would probably cause the CPI to rise more than the GDP deflator in the UK? An increase in the price of:

Accepted Answer

A)   BMWs produced in Germany and sold in the UK.
B)   Peugeots produced in the UK.
C)   Helicopters purchased by the Royal Navy.
D)   Domestically produced armoured vehicles sold exclusively to India.E) B) and C)
F) A) and D)

Question 19

The CPI is used to

Accepted Answer

A)   Convert nominal GDP into real GDP.
B)   Monitor changes in the cost of living over time.
C)   Characterize the types of goods and services that consumers purchase.
D)   Measure the quantity of goods and services that the economy produces.E) B) and D)
F) C) and D)

Question 20

If workers and firms agree on an increase in wages based on their expectations of inflation and inflation turns out to be more than they expected,

Accepted Answer

A)   The interest rate will fall
B)   Workers will gain at the expense of firms.
C)   Neither workers nor firms will gain because the increase in wages is fixed in the labour agreement.
D)   Firms will gain at the expense of workers.E) B) and C)
F) A) and D)

Exam 21: Measuring the Cost of Living

Under which of the following conditions would you prefer to be the borrower?

Correct Answer
verified

The CPI differs from the GDP deflator in that the CPI includes

Correct Answer
verified

Which of the following is a reason why the CPI is not calculated as a simple average of all prices?

Correct Answer
verified

Since the global financial crisis in 2007-09, real interest rates have been negative. This means that inflation is eroding people's savings more quickly than ________ are increasing their savings.

Correct Answer
verified

What does the CPI measure?

Correct Answer
verified
The CPI measures changes in prices of a ...
View Answer

The second step in computing the CPI is to find the prices of each of the goods and services in the ________ for each point in time?

Correct Answer
verified

Correct Answer
verified

The good that receives the most weight in the CPI is the good that

Correct Answer
verified

How does the GDP deflator differ from the CPI?

Correct Answer
verified
The GDP deflator differs from the CPI in...
View Answer

If workers and firms agree on an increase in wages based on their expectations of inflation and inflation turns out to be more than they expected,

Correct Answer
verified

If a lender wants a real return of 6 per cent and she expects inflation to be 4 per cent, which of the following is the nominal interest rate to charge?

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

The first step in computing the CPI is to determine which prices are most important to the _____________.

Correct Answer
verified

An increase in the price of helicopters purchased by the UK armed forces is captured by the Consumer Prices Index (CPI).

Correct Answer
verified

Improvements in the quality of consumer goods and services over time

Correct Answer
verified

Correct Answer
verified
a. The cinema ticket is worth €.25 × 177...
View Answer

Which of the following would probably cause the CPI to rise more than the GDP deflator in the UK? An increase in the price of:

Correct Answer
verified

The CPI is used to

Correct Answer
verified

A worker received €50 for a daily wage in 2000. What is the value of that wage today if the CPI was 20 in 200 and is 80 today?

Correct Answer
verified

An increase in the price of diamonds will have a greater impact on the Consumer Prices Index (CPI) than an equal percentage increase in the price of food because diamonds are so much more expensive.

Correct Answer
verified

Exam 21: Measuring the Cost of Living

Under which of the following conditions would you prefer to be the borrower?

Correct AnswerverifiedShow Answer

The CPI differs from the GDP deflator in that the CPI includes

Correct AnswerverifiedShow Answer

Which of the following is a reason why the CPI is not calculated as a simple average of all prices?

Correct AnswerverifiedShow Answer

Since the global financial crisis in 2007-09, real interest rates have been negative. This means that inflation is eroding people's savings more quickly than ________ are increasing their savings.

Correct AnswerverifiedShow Answer

What does the CPI measure?

Correct AnswerverifiedThe CPI measures changes in prices of a ...View AnswerShow Answer

The second step in computing the CPI is to find the prices of each of the goods and services in the ________ for each point in time?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The good that receives the most weight in the CPI is the good that

Correct AnswerverifiedShow Answer

How does the GDP deflator differ from the CPI?

Correct AnswerverifiedThe GDP deflator differs from the CPI in...View AnswerShow Answer

If workers and firms agree on an increase in wages based on their expectations of inflation and inflation turns out to be more than they expected,

Correct AnswerverifiedShow Answer

If a lender wants a real return of 6 per cent and she expects inflation to be 4 per cent, which of the following is the nominal interest rate to charge?

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

The first step in computing the CPI is to determine which prices are most important to the _____________.

Correct AnswerverifiedShow Answer

An increase in the price of helicopters purchased by the UK armed forces is captured by the Consumer Prices Index (CPI).

Correct AnswerverifiedShow Answer

Improvements in the quality of consumer goods and services over time

Correct AnswerverifiedShow Answer

Correct Answerverifieda. The cinema ticket is worth €.25 × 177...View AnswerShow Answer

Which of the following would probably cause the CPI to rise more than the GDP deflator in the UK? An increase in the price of:

Correct AnswerverifiedShow Answer

The CPI is used to

Correct AnswerverifiedShow Answer

A worker received €50 for a daily wage in 2000. What is the value of that wage today if the CPI was 20 in 200 and is 80 today?

Correct AnswerverifiedShow Answer

An increase in the price of diamonds will have a greater impact on the Consumer Prices Index (CPI) than an equal percentage increase in the price of food because diamonds are so much more expensive.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The CPI measures changes in prices of a ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The GDP deflator differs from the CPI in...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
a. The cinema ticket is worth €.25 × 177...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified